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  • Where Will All The Apple Money Go?

    Apple AAPL stock as the entire world knows has struggled over the last six months. The stock has gone from the darling of Wall Street to the equity no manager (except David Einhorn) wants to be caught dead holding. Apple shares are down 12.9% year to date while the S&P 500 and the Dow Jones have rallied to all time highs; +9.4% and +10.9% respectively. Now unlike your friends, your family, your dentist, that girl you talked to once on the train, or your broker, I am not going to comment on whether or not you should buy Apple at these levels, or how the stock will do going forward. This article has higher aspirations than to guess when a 400B juggernaut of a knife is done cutting. This article addresses the long standing trend and investing reality that Apples rapid growth days are behind it. Due to physics its hyper growth investors must eventually cash out and move on to other endeavors. Now, I suspect a sizeable number of investors and funds have already sold as the shares have fallen from $705 to a recent low of $419; but remember this company is massive. Even if 100B worth of hyper growth capital has exited, 300B more has yet to go.

    Below I will simply and briefly list a few candidates within the technology sector that will benefit from hyper growth investors leaving Apple for smaller and faster growing shores. Where Apple stock goes in the future is almost not relative to this article, but where its former investors go... could be worth a lot of money. The Apple share holder base is going through a multi-year, multi-billion dollar transformation.

    These are the facts people: (and ghosts)

    -There is and will always be a certain segment of the hedge fund (Hedgistan) and mutual fund community (your money) that needs two things: exposure to technology, and exposure to growth.

    -Funds are literally often required to have X amount in Tech, X amount in "growth"; or X amount in both.

    -When long time Apple investors cash out, they will be required to buy a "substitute". (If it is mandated you invest 20% of capital in Tech, you invest 20% of capital in Tech.)

    ----------------------------------------------------

    The profile:

    -Above market earnings growth

    -Technology sector

    -Mid-cap (room for a double or triple)

    -----------------------------------------------------

    Priceline.com PCLN Market Cap: 34.6B

    P/E: 25.1

    Forward P/E: 15.1

    Projected Earnings Growth YoY: 24%

    -Priceline.com stock has risen +400% in the last 5 years, while acquisitions Agoda.com and Booking.com have just become monsters internationally. The CEO is great, and the sector is red hot. Click here to read a bit more about Priceline from my June article. I'm not calling PCLN the next Apple, but it is close. Small market cap, great service, and the earnings growth to back it up.

    -------------------------

    Expedia.com EXPE Market Cap: 8.6B

    P/E: 31

    Forward P/E: 15.2

    Projected Earnings Growth: 11.8%

    -Similar story to Priceline.com. Great company, in a global growth sector. As investors look for new, high quality, hyper growth technology companies, they will be buying up shares of Expedia.

    -------------------------

    Google.com GOOG Market Cap: 267B

    P/E: 25.1

    Forward P/E: 15

    Projected Earnings Growth:17.1%

    -Google is just great. The company naturally was hated in the mid $500s a year or two ago, now it is the tech darling of Wall Street. Android has just been a monster of a mobile platform, revenue is up across the board, and hey the Google tablet finally came out. Click here to read a bit more on Google from my May article .

    -------------------------

    Amazon.com AMZN Market Cap: 117.7B

    P/E: N/A

    Forward P/E: 72.2

    Projected Earnings growth: N/A

    Sales Growth: 23.3%

    -What to say about Amazon... They remind me of reading about 1990's Cisco CSCO, a serial acquirer where the earnings never really materialized to support the market cap. Amazon is in my opinion a serial spender, and a decade later investors are still waiting on the earnings. But the reality is the CEO is a genius, and the stock only moves from the lower left to the upper right. For many in Hedgistan it seems Amazon was the place to go as Apple fell; as the 1 year chart below shows. The valuation scares me off, but I have been wrong not to be in the stock as the shares have rallied 28.4% over the last year alone.

    (click to enlarge)

    -------------------------

    Facebook.com FB Market Cap: 60B

    P/E: 1,682

    Forward P/E: 32

    Projected Earnings Growth: 30.9%

    -Now would I recommend FB? no. Speaking purely on valuation, I could buy $1 worth of American International Group AIG for $.50, or $.50 of FB for $1. The good news? Again fund managers will be forced (yes forced) to buy something in the tech sector with growth; that is FB. The company trades for 60B and is growing earnings; that is the ticket.

    -------------------------

    MasterCard MA Market Cap: 65B

    P/E: 24.4

    Forward P/E: 17.7

    Projected Earnings Growth: 15.6%

    -MasterCard is a tech company, one of the best there is. Are you bullish on the global economy? MasterCard is the best way to play that. Are you bullish on online shopping? Try pushing cash into your laptop. How about mobile payments? Cash will be gone in 20 years. How about travel or the growing global middle class? There is a card for that. Also buy Visa (NYSE:V). You can read more about MasterCard and Visa from my May article here. (One year chart below.)

    (click to enlarge)

    Conclusion:

    Remember the concept: "The hyper growth tech investor is never coming back to Apple". We can go through the 5 stages of grief if it helps: Denial, Anger, Bargaining, Depression, and Acceptance. The PE has been churning lower for years, and the word "value" has replaced "growth" for sell side analysts covering the stock. Over the next few years every single hyper growth investor in Apple will sell, and be replaced by a value investor.

    Buy what billions are chasing.

    Get ahead of the curve. The 300B in Apple money that needs a new home could buy Priceline.com 10x over, MasterCard 5x over, or push Google to $1000 over the next few years.

    ------------------------

    Always do your homework.

    Don't be afraid to read the tea leaves from time to time

    Wait for a 5-10% pullback -Buddha

    Disclosure: I am long MA, V, GOOG, PCLN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Mar 26 4:58 PM | Link | Comment!
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